FDIC mandates changes at CoastalStates; bank working to comply

CoastalStates Bank management is working to comply with deadlines to change operations and increase profitability, as mandated recently by the Federal Deposit Insurance Corp.

The Hilton Head Island-based bank, which is owned by CoastalSouth Bancshares Inc. and operates four branches in southern Beaufort County, agreed to a consent order in October from the FDIC and the S.C. Board of Financial Institutions, calling for several changes.

The order, dated Oct. 6 and made public last week, appears to call into question the ability of the bank's current management to generate profit.

For example, CoastalStates was given 60 days upon entering into the agreement to "restore all aspects of the bank to a safe and sound condition, including ... asset quality, capital adequacy, earnings, management effectiveness, risk management, liquidity and sensitivity to market risk."

The bank also had 30 days to develop an internal loan review and grading system to provide for the periodic review of its loan portfolio.

CoastalStates chief financial officer Charlie Christy downplayed the severity of the order and said it "simply represents a formalization of the road map we've already created to improve our operating results and strength."

The bank had already been working to address the stipulated issues for about two years before receiving the letter, Christy said.

This year, he said, the bank has reduced its problem assets by 19 percent and generated $8.2 million in new capital.

"We are a strong, solid and secure organization," Christy said. He added the order would have no impact on the bank's employees or account holders.

The order "is a standard letter that goes to many banks, especially in this economy," he said. "We're returning to profitability and are on excellent terms with our regulators."

In a Nov. 23 letter to all employees, CEO Randy Dolyniuk and CoastalSouth Bancshares Chairman James MacLeod said the bank still holds the highest market share on Hilton Head and has opened 2,181 new accounts since Jan. 1.

The letter also states the bank recorded a $2.6 million net loss for the third quarter, but total revenue for the year is up 24 percent over the same period in 2010.

The bank's board of directors -- which includes Heritage Classic Foundation Chairman Simon Fraser, former state Sen. Scott Richardson, and former S.C. Gov. James Hodges -- must increase its participation in its operations and establish a committee to oversee its compliance with the order.

Founded in 2004, the bank received assistance in 2009 from the federal Troubled Asset Relief Program.